Larry Gude
Strung Out
And we both know what happened during that month; contract law became a concept instead of a backbone of that full faith and credit.
Early inflation indicators?
- Thread starter Tilted
- Start date
And we both know what happened during that month; contract law became a concept instead of a backbone of that full faith and credit.
Tilted
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The 10 year note auction last Wednesday was generally regarded as not having gone well, generating a yield rate of 3.99%, which portended a continued increase in Treasury yield rates. However, the 30 year bond auction the next day went much better than expected, going off at a 4.72% yield with a bid-to-cover ratio of 2.68. That reversed the trend and long term Treasury yields have been falling ever since. The 10 year is now trading at 3.72%, while the 30 year is trading at 4.57%.
That should give a little relief to mortgage rates. The average 30 year fixed mortgage had climbed a staggering .68%, to 5.59%, in just 2 weeks.
That should give a little relief to mortgage rates. The average 30 year fixed mortgage had climbed a staggering .68%, to 5.59%, in just 2 weeks.
To put it simply, our government has us so far in debt that they have one of three choices to pay it off: 1) Simply default on the debt (not likely); 2) raise taxes significantly on everyone to pay for it (even less likely); or 3) inflate the money supply so the debt can be repayed in cheaper dollars (this is essentially a hidden tax on we the people). The money supply used to be measured by an index called the M3, published by the Federal Reserve. They mysteriously announced a few short years ago that they would no longer publish the M3 -- telling people like me that they knew then what they were planning to do as far as inflating the currency to very high levels.
The interest on bonds is going up because no one is foolish enough to buy them anymore. The countries of the world with surpluses (China) are not stupid. They know that the US has no choice but to inflate the currency and make it worth less (and possibly even worthless). So, why buy US debt. When there are no buyers, rates go up to entice someone. China is already making deals for direct currency exchange with countries like Brazil, eliminating the US Dollar are the reserve currency of the world. When our Secretary of the Treasury was recently in China trying to assure them that their investment in the USA was safe, he was literally laughed at by college students whom he was addressing. Also, take note of how many other officials have been making trips to China to beg them not to dump the USD: Clinton, Pelosi, etc...
Inflation is coming and soon. The only real debate is whether it will just be high inflation or hyperinflation. And the ultimate question is what can you do to protect yourself? Do your best to keep your job, cut your expenses to the bone, save what you can, and become as self sufficient as possible. So. Md. will probably fare better than many parts of the country. The massive federal military dollars being spent here will likely persist to the very end.
P.S. If you're still in the stock market or mutual funds hoping to recover your lost thousands, you're likely to be in for a bigger disappointment. Its not a question of if the stock markets are going lower, but of exactly how low will they go. If you stay in, you probably won't break even for a very long long time, if ever...
The possible exception is being in tangible assets like precious metals, commodities and oil.
Good luck to everyone in dealing with what's coming.
If you want to learn more, go to You Tube and watch videos by Marc Faber, Jim Rogers and Peter Schiff, or go to Financial Sense Newshour with Jim Puplava and listen to their excellent weekly financial news show.
The interest on bonds is going up because no one is foolish enough to buy them anymore. The countries of the world with surpluses (China) are not stupid. They know that the US has no choice but to inflate the currency and make it worth less (and possibly even worthless). So, why buy US debt. When there are no buyers, rates go up to entice someone. China is already making deals for direct currency exchange with countries like Brazil, eliminating the US Dollar are the reserve currency of the world. When our Secretary of the Treasury was recently in China trying to assure them that their investment in the USA was safe, he was literally laughed at by college students whom he was addressing. Also, take note of how many other officials have been making trips to China to beg them not to dump the USD: Clinton, Pelosi, etc...
Inflation is coming and soon. The only real debate is whether it will just be high inflation or hyperinflation. And the ultimate question is what can you do to protect yourself? Do your best to keep your job, cut your expenses to the bone, save what you can, and become as self sufficient as possible. So. Md. will probably fare better than many parts of the country. The massive federal military dollars being spent here will likely persist to the very end.
P.S. If you're still in the stock market or mutual funds hoping to recover your lost thousands, you're likely to be in for a bigger disappointment. Its not a question of if the stock markets are going lower, but of exactly how low will they go. If you stay in, you probably won't break even for a very long long time, if ever...
The possible exception is being in tangible assets like precious metals, commodities and oil.
Good luck to everyone in dealing with what's coming.
If you want to learn more, go to You Tube and watch videos by Marc Faber, Jim Rogers and Peter Schiff, or go to Financial Sense Newshour with Jim Puplava and listen to their excellent weekly financial news show.
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Tilted
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Yeah, (1) isn't going to happen before the other 2. The first time we default on a debt instrument, we will be completely and totally screwed. It would be hard to overstate how problematic that would be, and it won't happen unless our entire system is crumbling. I disagree about (2) though. I think that will happen to a large degree - it will just focus on the more prosperous among us. We will overtax people at the higher end of the income spectrum. We will increase the effective corporate tax rates (which is insidious and exactly the opposite of what we should do). We will let inheritance taxes revert back to where they were a few years ago ($1 M exemption and 55% Federal rate). We may well see some kind of national level property tax. We will have to tax everything that moves, and the primary targets will be those that are politically easiest to target. Option (3) will happen as well, but you can only do so much of that without having inflation that is so out of control that the system effectively ceases to function.
I agree with your general sentiment. Most of the problem now is excess supply, though. We are creating U.S. debt too quickly for the system to keep absorbing it without pricing it much higher. There is still plenty of interest in buying our debt - it's just a matter of what price people are willing to buy it at. Bid-to-cover ratios on Treasury auctions have been pretty high, even though the high yield accepted has been going up. With all of the supply coming down the pipeline, buyers have to price the risk higher than they would have to otherwise.
I've said for quite a while that there are only two kinds of money that have a place in the equity markets right now - very long term investment money, and very short term, actively traded money. Investing money with the intention (or need) to unwind the position in 5 days, or 5 months, or even 5 years, is still pretty dangerous right now. The long-term money that I have in equities is in companies that I think are winners - no matter what were to happen in the short-term, I expect that they would be the last companies standing in their industries. I'm not worried about what happens to their value in the intermediate term, and won't need the money I have in them during that time. I have confidence that they will have real value in 10 or 20 years. If they don't, I believe it will be because the entire global economic structure has fallen apart, in which case it wouldn't much matter where I had invested the money.
If someone is worried about inflation, and in light of that concern wants a way to protect the value of their assets, the answer is TIPS. The TIPS spreads have grown considerably since the beginning of the year, but the TIPS are still under-priced relative to conventional Treasuries, in my opinion. The 5 year TIPS spread is currently about 1-1/2%, and the 10 year is about 1-3/4%. I'd expect inflation to average more than that over those time periods, or at least that those spreads (i.e. inflation expectations) will rise significantly in the next 12-24 months. Although I wouldn't recommend it, the aggressive inflation play is to short Treasuries and buy the corresponding TIPS.
I should also note that Treasury yields are down significantly since last Thursday, with the 30 year bond now trading at a yield below 4.5%.
Tilted
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A good conversation (a roundtable, if you will) about inflation, initiated in response to this morning's CPI data (which was non-inflationary indicative).
Video - CNBC.com
Video - CNBC.com
Tilted
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Treasury yields spiked back up today (10 year - 3.85%, 30 year - 4.63%), mostly in response to the announcement by the Treasury that it will auction more than $100 Billion in debt instruments (2, 5, and 7 year notes) next week. At some point, the market just isn't going to be able to absorb the large amount of new supply that we are creating, without rates climbing significantly.
Larry Gude
Strung Out
If Obama had any sense, he's long since battled oil back down, thus making other products, hint, hint, more attractive.
In the mean time, interest costs go up, gas costs go up and Obama's opportunity to have money to do what he wants goes down.
Tilted
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Treasury yields have fallen quite a bit over the last 3 months. Current trading yields:
30 Year Bond 3.97
10 Year Note 3.18
2 Year Note 0.85
The 30Y and 10Y yields are well above the levels they were at near the beginning of this year, but remain low, historically speaking. Retail credit remains fairly cheap as well. The average 30 year fixed rate mortgage is back below 5% for the first time since May.
30 Year Bond 3.97
10 Year Note 3.18
2 Year Note 0.85
The 30Y and 10Y yields are well above the levels they were at near the beginning of this year, but remain low, historically speaking. Retail credit remains fairly cheap as well. The average 30 year fixed rate mortgage is back below 5% for the first time since May.
Larry Gude
Strung Out
Good new in that this cools inflation fears. Bad news because lower rates mean no one wants money, ie, the economy still sucks.
So much for talking up the end of the recession. This isn't a jobless recovery. This is a recovery less-recovery.
PS; Christmas is being lost, right now.
Tilted
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Oil at $200, Stocks Can Keep Rallying: Jim Rogers
I think Jim Rogers is saying what most people already know (or think) about U.S. Treasuries. The question, as usual, is timing. When do they start a significant and prolonged (or I suppose it could just be violent) decline (values down, effective yields up)?
I think Jim Rogers is saying what most people already know (or think) about U.S. Treasuries. The question, as usual, is timing. When do they start a significant and prolonged (or I suppose it could just be violent) decline (values down, effective yields up)?
Tilted
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Long Bonds Fall on Soft Demand for 30-Year TIPS
The Treasury auctioned 30 year TIPS (Treasury inflation-protected securities) for the first time since 2001 today. That prompted me to update a few things in this thread.
As for today's auction, the securities sold at a real yield rate of 2.229% (that's on top of the inflation adjustments that the principal will receive). The normal 30 year bond is currently trading at a yield of about 4.73%. Discounting some factors that can affect the pricing of those securities differently, that points to inflation expectations of about 2 1/2% over the next 30 years. The TIPS still seem relatively underpriced to me. Inflation over the last 30 years has averaged over 3%.
These spreads have moved up quite a bit - to about 2% for the 5 years and 2 1/4% for the 10 years. Here is a 2 year chart comparing the yields on normal 10 year Treasury notes (red) and 10 year TIPS notes (blue). You can see the spread (and thus some people's inflation expectation) is increasing. It should be noted though, that the complete collapse of the spread in late 2008 is probably attributable in some part to a pricing premium placed on liquidity at that time. There are fewer TIPS issued, and they get traded less frequently, so they are somewhat less liquid than normal securities are. That results in their trading value being a little less (and thus their trading yield being a little higher) relative to normal securities of the same maturity.
Current trading yields:
30 Year Bond 4.73
10 Year Note 3.80
2 Year Note 0.89
The Treasury auctioned 30 year TIPS (Treasury inflation-protected securities) for the first time since 2001 today. That prompted me to update a few things in this thread.
As for today's auction, the securities sold at a real yield rate of 2.229% (that's on top of the inflation adjustments that the principal will receive). The normal 30 year bond is currently trading at a yield of about 4.73%. Discounting some factors that can affect the pricing of those securities differently, that points to inflation expectations of about 2 1/2% over the next 30 years. The TIPS still seem relatively underpriced to me. Inflation over the last 30 years has averaged over 3%.
These spreads have moved up quite a bit - to about 2% for the 5 years and 2 1/4% for the 10 years. Here is a 2 year chart comparing the yields on normal 10 year Treasury notes (red) and 10 year TIPS notes (blue). You can see the spread (and thus some people's inflation expectation) is increasing. It should be noted though, that the complete collapse of the spread in late 2008 is probably attributable in some part to a pricing premium placed on liquidity at that time. There are fewer TIPS issued, and they get traded less frequently, so they are somewhat less liquid than normal securities are. That results in their trading value being a little less (and thus their trading yield being a little higher) relative to normal securities of the same maturity.
Current trading yields:
30 Year Bond 4.73
10 Year Note 3.80
2 Year Note 0.89
Tilted
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The trading yield on the 30-year U.S. Treasury Bond has climbed 20 basis points since passage of the health care bill (mostly over the last 2 days), and is now about 4.77% - that's 0.86% higher than the yield on the 30 year German Bund.
And, there's this:
Treasury Sees Another Weak Auction as Supply Issues Loom
Treasury Will Soon Have to Pay More to Finance Growing Debt
Why the Bond Auction Fizzled: Fears of a 'Fiscal Train Wreck'
The carrying costs on our debt are headed higher - there's just no way around that. The full effect of our 'ARM' adjustment may not be around the corner, but it is coming.
And, there's this:
Treasury Sees Another Weak Auction as Supply Issues Loom
Treasury Will Soon Have to Pay More to Finance Growing Debt
Why the Bond Auction Fizzled: Fears of a 'Fiscal Train Wreck'
The carrying costs on our debt are headed higher - there's just no way around that. The full effect of our 'ARM' adjustment may not be around the corner, but it is coming.
Larry Gude
Strung Out
Tilted
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You are suggesting that is not light of day coming at us?
Don't blame me, I didn't not vote for McCain.
Larry Gude
Strung Out
Uh oh...
Tilted
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You won't be so glib when the yield hits 4.86%, buddy.
On a more serious note - and more telling than the current yields - the yield on the 30 Year German Bund is now more than 1% lower than the yield on the 30 year U.S. Treasury Bond. Think about that - the world is willing to take 104 basis points less interest annually to loan its precious wealth to the Germans rather than to the Americans, even though that means the loans are denominated in Euros rather than Dollars. I mean, Europe is a fiscal mess, isn't it?
Larry Gude
Strung Out
Depends on what we're comparing it to. Or so says the world.
Get out the doomsday machine. Borrowed money is about to start getting more and more expensive on top of a crippled economy.
Sydney
Registered User
It's not starting to get more expensive, it's already more expensive! In January the 30 yr bond was as low as 4.50%, granted only for a few days, but it was much lower than it is today.
I'm waiting for the part time census workers to get laid off, and for the tax rebate to expire. Unfortunately, bad news is good for the mortgage market!
U.S. Treasury - Daily Treasury Yield Curve